U.S. to sell $32 billion in 3-year notes during session
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose for a fifth session on Tuesday, pushing 10-year yields under 2%, as Spanish debt sold off, reviving worries about Europe’s sovereign debt problems.
Analysts expect global and U.S. growth worries to support demand at the Treasury Department’s auction of 3-year notes 3_YEAR -7.06% later in the session.
Yields on 10-year notes 10_YEAR -2.68% , which move inversely to prices, fell 3 basis points to 2.02%. A basis point is one one-hundredth of a percentage point.
The benchmark 10-year yield hasn’t closed under 2% since March 7.
Thirty-year-bond yields 30_YEAR -1.75% declined 6 basis points to 3.14%.
Yields on 5-year notes 5_YEAR -5.29% lost 5 basis points to 0.86%, also their lowest level in more than a month.
Yields on Spain’s 10-year bonds reached their highest level since December, before the start of the European Central Bank’s long-term refinancing operations. See more on Spanish, Italian bonds.
“The European debt crisis is finding its voice again after a brief, LTRO-fuelled hiatus,” said Bill O’Donnell, head of Treasury strategy at RBS Securities.
The LTROs gave banks billions in cash, with the presumed intention of buying (or at least holding onto) sovereign debt and increasing lending to soften the blow of Europe’s recession. That appeared to work for a few months, but some analysts have said yields are rising again because that the money has been allocated.
At 1 p.m. Eastern time, the U.S. will auction $32 billion in 3-year notes. See Treasury auction schedule.
It’s the first of three major auctions this week. On Wednesday and Thursday, the government will sell 10-year notes and 30-year bonds.
Short-term debt has remained in demand because the Federal Reserve has said it will keep benchmark interest rates low through 2014. That reduces the risk of short-term yields rising, which would reduce the value of current holdings.
“We maintain our relatively constructive view on the front-end of the curve and expect solid demand at the 3-year auction, as we believe the Fed remains committed to dovish policy,” said bond strategists at Nomura Securities.
At the last four auctions of 3-year notes, all for the same amount, bidders offered to buy an average of 3.52 times the amount of debt sold, according to CRT Capital Group.
Indirect bidders, a group which includes foreign central banks, purchased 35%, on average.
Direct bidders, a group which includes domestic money managers, bought another 7.4% on average.
A larger proportion of each auction going to indirect and direct bidders is considered good for the Treasury and the market because those bidders tend to hold onto debt longer. Alternatively, the bulk of the remaining debt is bought by primary dealers, who tend to turn around and sell the newly-acquired securities into the market, pressuring prices.
Deborah Levine is a MarketWatch reporter, based in New York.
